FreightCar America sees ‘pockets of opportunity’

A photograph of two railcars at a rail yard.

FreightCar America (NYSE: RAIL) anticipates improving market conditions in the second half of 2020 as it seeks to crawl out from under the pandemic-induced headwinds of 2020’s first six months.

“I think you’re going to see an increase of some activity…across the industry” in the next several quarters, said FreightCar America President and CEO Jim Meyer during the company’s second-quarter earnings call on August 11. “We anticipate converting a number of these inquiries into orders without getting into specifics.”

Meyer continued, “You’re going to see the rest of the industry where order volume is going to remain somewhat lumpy. And a lot of it will be tied to the return of the economy…on the return of various components of the economy, post-COVID.”

The railcar manufacturer is seeing some “pockets of opportunity” from potential customers, such as shippers seeking to acquire a smaller number of new railcar builds, according to FreightCar Chief Commercial Officer Matt Tonn. 

“Looking forward to the next few quarters, we will maintain production line flexibility to quickly answer customers’ needs in an ever-changing environment where railcar sites are expected to fluctuate,” Tonn said. “We will also continue to take a problem-solving customer engagement approach, which includes accepting multiple small lot orders with our strategic shipper customers.”

Inquiry activity has also been “very positive” lately, outpacing the rate of inquiries seen in the third quarter, Tonn said.

Given its current production levels, FreightCar America expects railcar deliveries to total between 750 and 1,000 railcars in the second half of 2020. It also has 1,839 railcars in its backlog as of June 30, and it says it hasn’t lost any orders throughout the pandemic.

The company has been basing its assumptions on higher North American grain and intermodal traffic in the last few weeks. It also expects the fleet in storage to trend lower as parts of the economy reopen and rail volumes improve, according to Tonn. 

“We don’t expect demand to snap back quickly as railcars and storage remain near record levels. However, as we monitor key demand indicators, the last several weeks have seen a flattening and the decline of North American rail volumes overall. We do believe we are at an inflection point and near the bottom of their trough,” Tonn said.

Meanwhile, the 50-50 joint venture in Mexico with Fasemex, in which Fasemex and FreightCar America manufacture railcars, has been going smoothly, executives said, The facility in Castaños, Mexico, officially started production in July.

FreightCar America estimates the facility has the capacity to produce approximately 1,000 railcars per year, with opportunities to add additional production lines if needed. The company expects to have its first railcar order complete by early September.  

“The order is for a strategically important customer that was already in our backlog and we are working hard to ensure a well-executed ramp-up. The team is simultaneously preparing for the certification process in the fall,” Meyer said.

Second-quarter financial results

FreightCar America is still seeking to become profitable despite facing pandemic-induced market headwinds this spring.

“We’ve made significant strides in making our business more competitive. But our financial results are nowhere near where they need to be, pandemic or no pandemic. We know we need to do more. Cost and productivity are cornerstones of our culture now,” Meyer said.

Like other companies, FreightCar America experienced a higher rate of absenteeism in the second quarter because of the coronavirus pandemic, which caused a drag in the company’s production ramp-up in the second quarter, according to Meyer. Railcar deliveries were 100 cars below company expectations in the second quarter, he said. 

Railcar deliveries in the second quarter totaled over 100 railcars, compared with 11 in the first quarter of 2020 and 759 in the second quarter of 2019. The order backlog in the second quarter was 1,839 railcars worth an estimated $207 million, compared with 1,939 railcars in the first quarter of 2019. 

The company sustained a second quarter net loss of $12.8 million, or $0.97 per diluted share, versus a net loss of $159 million, or $1.26 per diluted share, in the second quarter of 2019.

Second-quarter revenue totaled $17.5 million on deliveries of 100 railcars, compared with $5.2 million in the first quarter of 2020 and $73.6 million in the second quarter of 2019.

(FreightCar America)

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